How Spontaneous? How Regulated?: The Evolution of Property Rights Systems

• Author: Richard A. Epstein
• Position: Laurence A. Tisch Professor of Law at New York University School of Law
• Pages: 2341-2364

How Spontaneous? How Regulated?: The Evolution of Property Rights Systems Richard A. Epstein  ABSTRACT: The property rights literature has had an extensive debate over the extent to which systems of property rights can be spontaneously generated by custom and common practice, without the positive intervention of the state. This Essay takes a divided view on that question, noting that these property rights, often with uncertain stability, can be created when it is possible to create a system of absolute priorities, as with land, or a system of proration, as with riparian property rights. The simple definition of rights, easily known and scalable, make this possible, so that government intervention, often through statutes of frauds and recordation are used to improve the overall stability, not to reconfigure those rights. More complicated systems—such as those used for preserving fish wildlife, for creating prior appropriation of water rights, pooling of oil and gas rights—require complex regulatory interventions, which should be crafted in a form that seeks by using principles of just compensation, the prior rights holders under simpler legal regimes. I. INTRODUCTION ........................................................................... 2342 II. A SPARE SET OF TOOLS ............................................................... 2344 III. WHERE SPONTANEOUS ORDER FAILS .......................................... 2355 A. W ILDLIFE .............................................................................. 2355 B. O IL AND G AS ......................................................................... 2356 C. W ATER R IGHTS ..................................................................... 2356 IV. CONCLUSION .............................................................................. 2363  Laurence A. Tisch Professor of Law at New York University School of Law, James Parker Hall Distinguished Service Professor Emeritus of Law and senior lecturer at the University of Chicago Law School, and Peter and Kirstin Bedford Senior Fellow at Hoover Institution. This Essay was originally prepared for a conference sponsored by the Classical Liberal Institute at NYU Law School on Spontaneous Order and Emergence of New Systems of Property on November 14 and 15, 2014. I also presented this Essay at faculty workshops at Bar Ilan and Tel Aviv Universities in December 2014. My thanks to Rachel Bukberg and Krista Perry, University of Chicago Law School Class of 2016, for their valuable research assistance. 2342 IOWA LAW REVIEW [Vol. 100:2341 I. INTRODUCTION There has been a longstanding debate in the judicial and academic literature about the role of custom and law in the formation of various property rights systems. For these purposes, I shall stress the opposition between custom and law, and not their similarities, which is consistent with my focus on the early emergence of property rights systems. With regard to their differences, it is best to think of custom in its earliest sense, where it functions as an application of general natural law principles, a phrase that is not in entirely in good order today. The point of this stipulation is not to resolve a longstanding debate on whether natural law conforms to reason or to common practice, both within and across social settings. Instead, it is quite sufficient to say that these two approaches are mutually reinforcing in the broad run of cases, such that the emergence of a rule that responds to both imperatives enjoys an extra measure of permanence and legitimacy. What then, for these purposes, is “natural law”? In this discussion, I use the phrase to address two issues. The first treats natural law as a mode for creation of legal rights and duties. The second is a powerful but often underappreciated feature of natural law rules: under a natural law system, the state cannot become the titleholder to any form of property, for the simple reason that there is no organized state in a state of nature. Starting with the former, the emphasis is on the mode of creation, and not its legal or ethical content. The term “natural law” is intended to highlight the simple proposition that these “prepolitical” rights and duties develop prior to the formation of a formal state, which, in its Austinian 1 and Weberian 2 sense, exercises a monopoly of force within the jurisdiction. The norms that emerge are decentralized, both in their creation and enforcement. Down the road these norms help legitimize the transition to a territorial state, which need not rise to the size and complexity of the modern nation state, but also encompass smaller city states that have defensible borders marked by defensive walls. Within these newly emergent states, legal actors can consciously adopt and ratify substantive norms that have already achieved a fair measure of community durability and legitimacy. Durability is relatively easy to measure, by looking at the period that a particular norm has lasted, subject to, as will always be the case, small incremental adjustments at the edges. Legitimacy is 1. See JOHN AUSTIN, THE PROVINCE OF JURISPRUDENCE DETERMINED, at vii (1832) (“Laws proper or properly so called, are commands: laws which are not commands, are laws improper or improperly so called.”). See generally HANS KELSEN, GENERAL THEORY OF LAW AND STATE (Anders Wedberg trans., Russell & Russell 1961) (1945). 2. 1 MAX WEBER, ECONOMY AND SOCIETY 54 (Guenther Roth & Claus Wittich eds., 1968) (1922) (stating that an organization or group counts as “a ‘state’ insofar as its administrative staff successfully upholds the claim to the monopoly of the legitimate use of physical force [das Monopol legitimen physischen Zwanges] in the enforcement of its order”). This definition obviously does not take into account the complications of a federalist system. 2015] HOW SPONTANEOUS? HOW REGULATED? 2343 always more difficult to assess, but for these purposes, it is established by satisfying the following simple condition: the loser in a particular dispute is willing to accept the outcome because he respects the decisional process and thus regards the norms it produces as working in his long-run interest. 3 Any such situation is likely to prove stable so long as, for the disappointed litigant, the long-term gains from continuing in the practice exceed the short-term losses in a particular dispute. 4 That disappointed litigant (or his allies) could form that last judgment from either selfish or benevolent reasons. That actor could think that the loss in one case will lead to victories in future disputes, or will lead, alternatively, to higher overall levels of output, which, going forward, he will share with other members of that community. Given that we are in pre-state mode, the communities in question are often tribes or clans. Accordingly, any given actor has affective ties to a large fraction of individuals with whom he repeatedly interacts, measured by a shared genetic inheritance, which reduces, but does not eliminate, conflicts of interest. 5 For these purposes, the exact mixture of the influence of moral judgment and pragmatic self-interest does not matter, assuming that these two forces can be disconnected. What does matter is that the emergent customs and practices in the state of nature cannot be treated as a consequence of conscious deliberation and supervision by the state. The second distinctive feature of natural law is that the state cannot be a rights holder of any resource, for the simple reason that there is no state at all. At this point there are two options for resource control. By the first, resources can be said to be res commune , which means that these are subject to an open access regime. The key text in regard to this position comes from Justinian, who writes: “Thus, the following things are by natural law the law common to [mankind]—the air, running water, the sea, and consequently the sea-shores.” 6 The consequence of treating these resources as res commune is that no person who abides by the rules can be denied access to these common resources. But it is critical to note that these resources are not owned by anyone, and, furthermore, that they can never be reduced to private ownership by individual actions, including damming or diverting a river. Therefore, the typical effort to locate the public trust doctrine in this passage is historically misguided because that doctrine rests on the notion of a political sovereign—one with duties to manage these assets for its citizens— 3. For discussion, see Richard A. Epstein, The Path to The T.J. Hooper : The Theory and History of Custom in the Law of Tort , 21 J. LEGAL STUD. 1 (1992), addressing these practices in the context of contract and tort litigation. 4. See generally Benjamin Klein & Keith B. Leffler, The Role of Market Forces in Assuring Contractual Performance , 89 J. POL. ECON. 615 (1981). 5. See W.D. Hamilton, The Genetical Evolution of Social Behaviour. I , 7 J. THEORETICAL BIOLOGY 1, 1–8 (1964). 6. J. INST. 2.1.1 (J.B. Moyle trans., Oxford Clarendon Press 5th ed. 1913). 2344 IOWA LAW REVIEW [Vol. 100:2341 who plays no part in the natural law system. 7 By the same token, on the other side of the line lie those things that are not held in common, but rather are res nullius : things owned by no one, which can be reduced to ownership by occupation (for land) or by capture (for animals and chattels). 8 Once again the creation of ownership requires no state involvement for its completion, and thus qualifies as a natural law doctrine in the sense used here. In contrast with both modes of natural law acquisition lie those formal interventions that require the existence of a formal state that exhibits some combination of legislative, executive, and judicial power. In these situations, the common law in its formative stages is likely to exhibit properties that are derived from the customary law on which it builds. A wise judge will seek some...